Injunction - Restraint of company meeting - Whether proper notice of general meeting given - Whether attendance of people entitled to be given notice and to attend but not vote is material - Whether concerns regarding financial management could be addressed by requiring an undertaking

Corporations Act 2001 (Cth), s 201E, 203D, s 249H, s 249R, s 1322, s 1324

1 HALL J: On 14 February 2014 I granted an application for an injunction, restraining the holding of a meeting of the members of the plaintiff on Sunday, 16 February 2014. I gave brief reasons and said that more detailed reasons would be published in due course.

2 The plaintiff (NTKML) and the defendant (NAC) are nonprofit corporations serving an Aboriginal community in the Pilbara known as the Ngarluma People. The Ngarluma People are principally based in Roebourne. They are a relatively traditional community with an ongoing commitment to their cultural practises and law ceremonies. The community suffers from low levels of literacy and significant social disadvantage. A relatively high proportion of the community lack financial selfsufficiency and do not have ready access to basic services such as transport.

3 A determination of native title in favour of the Ngarluma People was made by the Federal Court in 2005. This was subsequently varied by the Federal Court in 2007, though the variation is not presently material. In 2006 NAC was appointed to be the prescribed body corporate in relation to the Ngarluma People's native title rights and interests. It holds those native title rights and interests for and on behalf of the Ngarluma People pursuant to pt 2 div 6 of the Native Title Act 1993 (Cth).

4 Two resource companies, Hamersley Iron Pty Ltd and Robe River Mining Company Pty Ltd (the resource companies) conduct mining operations on land covered by the Ngarluma native title determination. In 2011 NAC and an associated entity, Mount Welcome Pastoral Company Pty Ltd, entered into an Indigenous Land Use Agreement with the resource companies. The agreement provided for substantial upfront and ongoing payments to be made by the resource companies for the benefit of the Ngarluma People. The agreement provided for a regime to be established to receive, manage and distribute the financial payments. This regime is referred to as the 'benefits management structure'.

5 At the core of the benefits management structure are two trusts. One of those trusts is a charitable trust for the distribution of a proportion of the financial benefits for charitable purposes. The second trust is intended to receive the balance of the financial benefits for distribution to individual Ngarluma People. The second trust is referred to as the 'direct benefits trust'. The benefits management structure contemplates that the trustee for the two trusts will be a public company limited by guarantee. NTKML, the plaintiff in these proceedings, is the public company that was incorporated for the purpose of being the trustee of the two trusts.

6 A further agreement has been entered into between NTKML, NAC and the resource companies to provide for specific obligations of the trustee with respect to governance, accounting and reporting to the resource companies. This agreement is referred to as the 'SubFund Agreement'.

7 NAC is the sole member of NTKML. The members of NAC are individual Ngarluma People who have been registered for that purpose. Although NAC is the sole and thus controlling member of NTKML, the documents comprising the benefits management structure contemplate consultation with the Ngarluma People directly regarding operation of the trusts. In particular, this is reflected in the Constitution of NTKML which provides that Ngarluma People are entitled to notice of any general meeting of that company and may attend such a meeting notwithstanding that they cannot vote: See Article 7.3(a)(iv). The Constitution also provides that whilst the appointment of a director is by ordinary resolution of NTKML any such appointment must be endorsed by the Ngarluma People: See Article 8.5.5. These provisions strongly suggest that whilst the board of NAC may be in a position to control how votes at an NTKML general meeting are cast on behalf of NAC, it must do so on behalf of and in consultation with the Ngarluma People. This conclusion is reinforced by the fact that the SubFund Agreement contains clauses requiring that decisions of NAC in regard to NTKML must be validly made and that NTKML can require NAC to provide evidence of the proper calling of any meeting or making of a decision: See SubFund Agreement cl 16.

8 The trust deeds for the charitable trust and the direct benefits trust require NTKML to provide the functions of an executive office to administer the daytoday management of the two trusts. NTKML may appoint an organisation to undertake the function of the executive office. The trust deeds expressly allow for NAC to be appointed in this regard. NTKML has appointed NAC to undertake these functions. This includes administration of the bank accounts relating to the two trusts. In practice NTKML is responsible for considering and approving funding distributions from the two trusts. NAC then administers the disposition of monies in accordance with authority provided by NTKML.

9 From late 2013 the relationship between NTKML and NAC has deteriorated. The board of NTKML has expressed concerns about NAC's financial management, transparency and accountability. In turn the board of NAC has made allegations of financial mismanagement against the board of NTKML. It is unnecessary to detail the various allegations. The merits of those allegations cannot be determined on this application. It is sufficient to note that this discord is the motivating factor behind a move by NAC to dismiss and replace the present board of NTKML.

10 On 11 November 2013 NAC sent two letters addressed to the directors of NTKML. One of those letters was headed, 'Compliance Issues - Resolutions of the NAC Board'. In that letter NAC gave notice of an intention to remove the board of NTKML at the annual general meeting (AGM). At that time the AGM of NTKML was due to be held in January or February 2014.

11 Solicitors acting on behalf of NTKML responded to the NAC letter on 4 December 2013. The response advised that NTKML had made an application to the Australian Securities and Investments Commission for an extension of time to hold the AGM to the end of March 2014 due to cultural and law ceremonies being held in January and February. These ceremonies would make it difficult to contact many of the Ngarluma People and for those people to attend a meeting before the end of March. The letter confirmed that NTKML would comply with any obligation to put the resolution the subject of NAC's request at the AGM.

12 On or about 23 January 2014 documents that purported to be notices of a special general meeting were sent by NAC to the directors of NTKML and to members of the Ngarluma People. Two different types of notices were sent. The notice sent to directors was undated and unsigned and did not state on whose behalf the notice was being given. This document purports to give notice of a general meeting of NTKML on 16 February 2014 at 1.00 pm at a location in Karratha. The document sent to members of the Ngarluma People was also undated and did not identify on whose behalf it was given. More significantly, this document did not give a day on which the meeting was to be held referring merely to 'on February 2014 at 1.00 pm'.

13 On 31 January 2014 a letter was sent by NAC to the directors of NTKML and to members of the Ngarluma People. The first part of the letter related to membership application forms. There was then a reference to the proposed general meeting which stated that NAC 'take this opportunity to remind you' of a special general meeting to be held on 16 February 2014 at 1.00 pm. The letter went on to state that community members were not required to attend but could do so as observers.

14 On 4 February 2014 the board of NTKML held a meeting. At that meeting the directors of NTKML exercised a power under Article 7.7 of the company's Constitution to postpone the purposed general meeting to the date fixed for the AGM, being 29 March 2014.

15 There then followed an exchange of correspondence between solicitors acting for NTKML and NAC respectively. On behalf of NTKML it was asserted that the notice of meeting sent to the Ngarluma People on 23 January 2014 was invalid and that, in any event, any such meeting had been postponed to 29 March 2014. On behalf of NTKML assurances were given that it would not incur any nonroutine expenditure prior to the AGM.

16 On behalf of NAC it was conceded that there had been an error in the notice sent to members of the Ngarluma People but it was said that this error had been corrected by an amended notice that was sent out the following day. No evidence of any such amended notice has been provided on the hearing of this application. It was also asserted that the error in the notice sent to members of the Ngarluma People was not material as they were not entitled to vote at general meetings. It was also asserted that the board of NTKML had not exercised its power to postpone the special general meeting for a proper purpose.

17 On 11 February 2014 NTKML sent a notice to members of the Ngarluma People advising that the board of NTKML had postponed the general meeting proposed to be held on 16 February 2014 and explained the reasons for doing so. Those reasons included ensuring that members of the Ngarluma People could be in attendance at any general meeting held to determine the composition of the board of NTKML.

18 On 12 February 2014 NTKML filed an originating process together with an application for an interlocutory injunction. The originating process was an application made pursuant to s 249R, s 1322(2) and s 1324 of the Corporations Act 2001 (Cth), r 2.2 of the Supreme Court (Corporations) WA Rules 2004 and the inherent jurisdiction of the court. The application sought declarations that the notice of general meeting issued to the Ngarluma People on 23 January 2014 was invalid, that the proposed meeting was not called to be held at a reasonable time and place, that in any event the meeting had been validly postponed and that there be an injunction pursuant to s 1324(1) of the Corporations Act restraining the defendant from holding a special general meeting on 16 February 2014 and from voting on the resolutions contained in the notice.

19 The interlocutory process was an application pursuant to s 1324(1) Corporations Act and O 52 of the Rules of the Supreme Court and r 2.2 of the Supreme Court (Corporations) WA Rules 2004 for an injunction restraining the defendant from holding any special general meeting on 16 February 2014 and from voting on the resolutions contained in the notice of 23 January 2014 pending the hearing and determination of the proceedings.

20 As will be evident, this was a case where the granting of an injunction was likely to be finally determinative of the proceedings. Given the short timeframes involved, if the defendant was restrained from holding the general meeting on 16 February 2014 issues regarding the validity of the notices would have limited continuing significance. The reason why the validity of the notices was challenged was to seek to establish that the proposed meeting did not have proper legal basis.

21 Where, as here, the practical impact of the grant of an injunction will be to achieve the objective that the plaintiff seeks in the principal proceedings, the likelihood that the plaintiff would have succeeded in those proceedings becomes a significant factor. It is a matter that should be brought into the balance in weighing the risk that injustice may be done in deciding the application one way or the other. That does not mean that the matters at issue in the primary proceedings must be capable of being finally determined on the application for an injunction. To impose such a requirement would be to set a standard that was higher than that required for an interlocutory injunction. It would also fail to take into account that on such an application the available evidence may be limited. However, counsel for the plaintiff did accept that this was a case where the granting of an injunction would effectively preempt the final relief sought and that this was a relevant factor to take into account.

22 In determining whether an interlocutory injunction should be granted the principles that apply are outlined by the High Court in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65].

23 The general principles are well settled and conveniently summarised in Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] [13]. The plaintiff must demonstrate that there is a serious question to be tried and that the balance of convenience favours the grant of an injunction. The question of whether damages would be an adequate remedy should also be considered; whether as an aspect of the balance of convenience or as an independent question. These principles are equally applicable on an application relating to alleged breaches of the Corporations Act and of a company constitution where it is sought to restrain a meeting: Re Pine Air Energy Holdings [2013] NSWSC 425 [6].

24 One of the factors to bear in mind where it is sought to restrain a meeting of the members of a company is that by so doing the court will prevent members from exercising their entitlement to vote. The power to call a meeting and vote on a resolution regarding the composition of the board is the only practical way that a member can influence how the company is managed. However, a bias in favour of allowing members to express their will even where there are questions about the lawfulness of a meeting is perhaps less strong than it once was. In this regard see Stratford Sun Ltd v OM Holdings Ltd, Re; O M Holdings Ltd [2011] FCA 414; (2011) 83 ACSR 84 [24] [25].

25 There is clearly a serious issue as to whether proper notice was given of a special general meeting proposed to be held on 16 February 2014. In this respect it is important to take into account that the constitution of NTKML contemplates that notice will be given not only to members with a right to vote but also to individual members of the Ngarluma People. The fact that the Ngarluma People do not have a right to vote does not mean that any failure to give them proper notice of the meeting is immaterial.

26 In my view, the clear purpose of the provision in the NTKML constitution requiring that notice be given to the Ngarluma People is to afford them an opportunity to attend any meeting and to express their views as to how NAC should exercise its vote. Given that NAC is obliged to exercise its vote having regard to the interests of the Ngarluma People the requirement to give notice to those people is no mere formality.

27 It is plainly arguable that the failure to provide notice to the Ngarluma People of the date of the proposed meeting was not corrected by the letter sent on 31 January 2014. That letter did not itself purport to be a notice. Whilst it referred to a meeting it did not specifically incorporate the information contained in the earlier purported notice. By referring to a 'reminder' the letter contained an assumption that the earlier notice had in fact contained all the necessary details. This was, of course, incorrect. To conclude that the letter was referring to the proposed meeting of 16 February 2014 at which a resolution to depose the board of NTKML was to be considered required that a number of assumptions be made. The fact that such assumptions were required precludes any suggestion that the notice and letter can be read together as constituting adequate notice of the meeting. This is particularly so bearing in mind that the available information is that many of the Ngarluma People to whom the notice and letter were sent have limited literacy skills. Even when read together it is arguable that the notice and letter were apt to confuse and did not provide the appropriate and necessary notice of a meeting.

28 There was some suggestion in correspondence that there had been an amended notice sent soon after the original notice. The hearing of this application was adjourned to enable the defendant to put on affidavit evidence to deal with this issue. In the event, no such evidence was forthcoming. There is no evidence of the existence of any amended notice. At the hearing counsel who appeared for the defendant conceded that the application had to be determined on the basis that the only notice that was given was that of 23 January 2014. The notice of that date that was sent to the Ngarluma People did not specify a date for the meeting. Thus, it is strongly arguable that no proper notice to them was given.

29 The failure to provide a date for the proposed meeting is not the only alleged defect in the notice given to the Ngarluma People. One of the resolutions proposed by the notice is a resolution proposing the appointment of more than one new director. Such a resolution is invalid under s 201E of the Corporations Act unless certain conditions are met. There is obviously good reason why each proposed new director should be the subject of a separate resolution. This might be thought to be less significant where there is only one voting member. However, the Constitution, in providing for the attendance of Ngarluma People at any general meeting, clearly implies that NAC will exercise its vote having regard to the wishes of those Ngarluma People in attendance. It may well be that if any general meeting proceeded the Ngarluma People may wish NAC to exercise its vote differently in respect of different proposed directors. The defect in this resolution could not be cured because by the time this matter came on for hearing there was insufficient time to give notice of any ancillary motion as contemplated by s 201E(1)(a) of the Corporations Act.

30 Section 203D(2) of the Corporations Act also requires that the company be provided at least two months' notice of any meeting to be held to remove a director. The evidence is that notice of a proposed resolution was given in November but the letter which provided that notice referred to a resolution that was to be put at the AGM. Accordingly, that notice could not meet the requirements of s 203D(2) as being notice of an intention to put a resolution to remove directors at a special general meeting.

31 Section 249H(3) of the Corporations Act requires that at least 21 days' notice must be given of a meeting of the members of a public company at which a resolution will be moved to remove or appoint a director. The letter sent on 31 January 2014, even if it could be characterised as a notice, did not comply as this was less than 21 days before the date of the proposed meeting. Even though the Ngarluma People are not strictly speaking 'members' their entitlement to notice under the NTKML Constitution strongly suggests that they are entitled to the same amount of notice as that given to members.

32 A further issue is that the SubFund Agreement enables NTKML to require NAC to provide evidence that a resolution or decision of NAC in connection with the benefits management structure was properly made in accordance with NAC's Constitution. The replacement of directors of the trustee company is clearly a matter in connection with the benefits management structure. The available evidence is that NTKML has requested the relevant evidence of NAC's decisionmaking process but that such evidence has not been provided. This raises a question as to whether the decision by NAC as a member of NTKML to call the meeting was validly made.

33 Whilst it may be arguable that some of these irregularities are merely procedural in terms of s 1322(1) of the Corporations Act, others are not. The most critical consideration is whether the procedure that has been followed has in practical terms provided a reasonable opportunity for the Ngarluma People to attend at an NTKML general meeting on 16 February 2014. In my view, there is a serious question to be tried in this regard. There is clearly a significant possibility that members of the Ngarluma People will not be aware of the proposed meeting or of their right to attend it.

34 This position is compounded by the fact that the board of NTKML has exercised its power to postpone the meeting. A question has been raised as to whether this power has been exercised for a proper purpose. The ostensible purpose is that Ngarluma People have not been given adequate notice of the meeting and, in any event, it is to be held at a time when due to cultural and law ceremonies their attendance would be difficult. Whilst NAC does not accept that this was the real purpose and submits that the NTKML board was acting out of selfinterest, there is a serious question to be tried as to whether that postponement was valid and whether a declaration to that effect should be granted. Furthermore, whether or not the postponement was valid, the practical effect of it is that the Ngarluma People have been told that the meeting has been postponed. This makes it even more unlikely that they will attend.

35 It is important to note at the outset that the AGM of NTKML is due to be held in March in any event. At the AGM one of the matters that would necessarily fall for consideration would be whether the present board is reelected or replaced by new directors. At that meeting both NAC, as the member of NTKML, and members of the Ngarluma People would have the opportunity to make their views known. This raises an obvious question of why it is necessary to hold a special general meeting in addition to, and so close in time to, the AGM.

36 Counsel for the defendant submitted that the concerns of NAC related to financial mismanagement. No details in this regard were provided. NTKML denies any financial mismanagement and proposes to appoint a forensic auditor to examine the books of NTKML and provide a report that will be available at the AGM. NTKML has also stated in correspondence that it will not make any significant financial decisions in the next six weeks prior to the AGM and will effectively conduct NTKML's business in 'caretaker mode'. It should be recalled in this regard that any financial decisions made by NTKML would be known by NAC as it has been appointed to provide executive management services to NTKML.

37 At the hearing of this application I queried whether the concerns of NAC could be substantially met by requiring NTKML to give an undertaking to the court as a condition of an injunction that it would not make any financial commitments other than those relating to daytoday management matters prior to the AGM and that it would, as it has promised to do, appoint a forensic accountant. Counsel for the defendant conceded that an undertaking in these terms would significantly address any prejudice that could possibly flow to the defendant from the granting of an injunction.

38 On the other hand, if an injunction was not granted and the meeting of 16 February 2014 proceeded, the likely outcome would have been chaotic. If the meeting proceeded and the resolutions to dismiss and replace the existing board were passed questions would persist as to the validity of that meeting and of those decisions. It is likely that the existing board would continue to maintain that it remained the only validly appointed board whilst the new directors would maintain a contrary claim. It would be inevitable in these circumstances that further proceedings would be required to resolve this dispute. Management of the company in the meantime would undoubtedly be adversely affected by the uncertainty as to which directors were in charge and what decisions were valid. As the plaintiff submitted, the paralysis that is likely to result from such confusion may well affect in a very real way the interests of the Ngarluma People.

39 In contrast to this, if an injunction was granted and no significant financial decisions made, the interests of the Ngarluma People could be preserved until the AGM is held. Those interests would not be prejudiced by the giving of an undertaking because all significant distributions from the trusts have already been made in the present financial year. In these circumstances the balance of convenience clearly favours the granting of an injunction.

40 For the above reasons I was satisfied that there was a serious question to be tried on all of the issues raised by the plaintiff and that the balance of convenience favoured the granting of an injunction. I therefore granted an injunction on condition that the plaintiff provide an undertaking in the terms referred to. The wording of the undertaking was agreed between the parties and incorporated into the orders made.